HUGO Chavez, Venezuela's president-elect who died Tuesday, was a remarkable individual whose policies did his country both great good and great harm. The word most frequently used to describe this former low-ranking soldier is “charismatic”. And indeed he lacked neither personality nor presence. He was a brilliantly effective populist politician, adored by his supporters and roundly loathed by his political opponents. From when he first became president in 1998, he very largely delivered on his socialist promises to improve the lot of his country's poor and marginalized through a combination of constitutional changes, land reform and heavy health and welfare spending. The result was rising living standards among the working classes, as opposed to the country's bourgeoisie. There was, however, a price to pay for the state's openhandedness. Through a program of nationalization and arm-twisting of big business, Chavez annexed oil company profits. Unfortunately, the president overlooked the basic truth that follows enforced socialist policies: Investment dries up, technology transfer stops and, perhaps most importantly, once-efficient management structures decay and atrophy under state control. Venezuela's predominantly heavy crudes have always had to fight for a place in the market and past governments decided to add value by refining locally. This sector too suffered seriously from Chavez's socialist policies. More importantly, as business activity diminished throughout the country, so too did tax revenues. His solution was to print more money, the result being that inflation last year rose to 27.6 percent. The irony was that it was the most enthusiastic and dedicated supporters of the president who suffered the most from this inflation. Middle class Venezuelans with loans and mortgages can actually benefit from the falling value of their debt. The solution Chavez produced was to increase the financial support to the poor, which involved printing more money, which gave a further push to inflation. Had Chavez now been beginning his fourth term, he would shortly have been facing the economic consequences of his financial indiscipline. While most other South American economies, with the exception of socialist Bolivia, are to one degree or another on a strong economic upswing, Venezuela for all its abundant hydrocarbon wealth is languishing. There can be no doubt that before Chavez won office 14 years ago, there was an inequitable distribution of wealth and economic power favoring the elite. Venezuela had some seriously poor and deprived people. However, the consequence of his reforms has been that the balance has swung too far the other way. Yet Chavez continued to pursue the lie that warnings from financiers and economists about his unsustainable spending were merely cooked up by his political enemies. Perhaps Chavez really believed what he said. His capacity to stare reality in the face and see absolutely nothing was demonstrated by his attitude to his cancer. He twice assured his supporters that he had made a full recovery. Indeed he went into the presidential election last year vowing that he was entirely well. Even before the campaign had ended it was apparent that, sadly, this was a complete lie. Yet the operations and treatments in Cuba were all supposed to have worked and he was coming back to be sworn in. Just as Chavez denied his own mortal illness, so he and his advisers denied the financial home truths of his economic policies. The good news, however, is that all economies stricken by bad management can in the end recover.
